LG Corp. FY2012 Separate Audit Report

LG CORP.

SEPARATE FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012, AND INDEPENDENT AUDITORS’ REPORT

Independent Auditors’ Report

English Translation of a Report Originally Issued in Korean

To the Shareholders and the Board of Directors of LG Corp.:

We have audited the accompanying separate statements of financial position of LG Corp. (the “Company”) as of December 31, 2013 and 2012, and the related separate statements of income, separate statements comprehensive income, separate statements of changes in shareholders’ equity and separate statements cash flows for the years ended December 31, 2013 and 2012, all expressed in Korean won. These separate financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these separate financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall separate financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the separate financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations, its comprehensive income, its shareholders’ equity and its cash flows for the years ended December 31, 2013 and 2012, in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying separate financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying separate financial statements are for use by those knowledgeable about Korean accounting principles and auditing standards and their application in practice

March 13, 2014

Notice to Readers

This report is effective as of March 13, 2014, the auditors’ report date. Certain subsequent events or circumstances may have occurred between this report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying separate financial statements and may result in modifications to the auditors’ report.

LG CORP. (the “Company”)

SEPARATE FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

The accompanying separate financial statements, including all footnote disclosures, were prepared by and are the responsibility of the Company.

Junho Cho

President and Chief Operating Officer

LG Corp.

LG CORP. SEPARATE STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2013 AND 2012

Korean won

December 31, December 31, 2013 2012

ASSETS

CURRENT ASSETS: Cash and cash equivalents (Notes 5, 6, 19 and 27) ￦ 185,978,801,182 ￦ 120,964,797,882 Financial institution deposits (Notes 5 and 19) 140,000,000,000 100,000,000,000 Other receivables, net (Notes 5,7 and 22) 14,016,867,947 20,479,467,636 Other current assets (Note 8) 106,422,178 129,398,801 Total current assets 340,102,091,307 241,573,664,319

NON -CURRENT ASSETS: Available-for-sale (“AFS”) financial assets (Notes 5, 95,115,547,734 19 and 27) 93,058,214,613 Other non-current receivables, net (Notes 5,7 and 24) 25,769,000 525,769,000 Investments in subsidiaries (Note 11) 932,836,546,101 872,836,546,101 Investments in associates and joint ventures (Note 11) 5,837,049,872,259 5,832,713,548,810 Other non-current assets (Note 8) 3,269,998,882 3,317,544,071 Property, plant and equipment, net (Note 9 and 25) 21,303,402,418 23,056,833,570 Investment property, net (Note 9) 630,948,735,895 626,435,640,568 Intangible assets (Notes 10) 11,364,670,202 10,073,272,021 Total non-current assets 7,531,914,542,491 7,462,017,368,754 TOTAL ASSETS ￦ 7,872,016,633,798 ￦ 7,703,591,033,073

(Continued)

LG CORP. SEPARATE STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2013 AND 2012 (CONTINUED)

Korean won December 31, December 31, 2013 2012

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES: Other current payables (Notes 5, 21, 22 and 27) ￦ 90,753,306,549 ￦ 95,271,727,114 Current tax liabilities 27,725,790,713 33,566,900,739 Other current liabilities (Note 13 and 22) 6,893,871,876 6,341,776,972 Total current liabilities 125,372,969,138 135,180,404,825

NON-CURRENT LIABILITIES: Other non-current payables (Notes 5, 22 and 27) 7,174,259,452 6,724,232,100 Net defined benefit liability (Notes 12 and 22) 8,233,810,223 9,558,542,935 Deferred tax liability (Note 20) 134,385,901,117 136,091,140,169 Other non-current liabilities (Note 13 and 22) 6,996,993,348 7,412,542,900 Total non-current liabilities 156,790,964,140 159,786,458,104 TOTAL LIABILITIES 282,163,933,278 294,966,862,929

SHAREHOLDERS ’ EQUITY Issued capital (Note 14) 879,359,040,000 879,359,040,000 Capital surplus (Note 15) 2,409,002,192,481 2,409,002,192,481 Other capital items (Note 14) (2,385,112,284) (2,385,112,284) Accumulated other comprehensive income (Note 16) 34,933,228,448 33,373,769,943 Retained earnings (Note 17) 4,268,943,351,875 4,089,274,280,004 TOTAL EQUITY 7,589,852,700,520 7,408,624,170,144

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ￦7,872,016,633,798 ￦7,703,591,033,073

(Concluded)

See accompanying notes to the separate financial statements.

LG CORP. SEPARATE STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Korean won Year ended Year ended December 31, 2013 December 31, 2012

Operating income: Dividend income (Notes 4, 18 and 22) ￦ 200,289,747,657 ￦ 252,609,508,715 Royalty revenue (Notes 4, 18 and 22) 269,084,991,809 271,100,023,273 Rental revenue (Notes 4, 18 and 22) 98,671,634,327 92,853,389,119 568,046,373,793 616,562,921,107 Operating expenses: Employee benefit (Notes 18 and 22) 26,243,340,925 22,328,072,340 Depreciation (Notes 9 and 18) 16,347,435,072 16,216,227,721 Other operating expenses (Notes 18 and 22) 115,969,076,018 109,718,573,786 158,559,852,015 148,262,873,847

Operating income 409,486,521,778 468,300,047,260

Non-operating income and expenses Financial income (Note 19) 7,176,124,982 3,888,187,903 Financial expenses (Note 19) 415,549,552 583,083,051 Other non-operating income 1,141,799,467 14,581,950 Other non-operating expenses 1,651,865,390 249,361,958 Profit before income tax expense 415,737,031,285 471,370,372,104

Income tax expense (Note 20) 59,758,481,043 63,250,122,047

Profit for the year ￦ 355,978,550,242 ￦ 408,120,250,057

Earnings per share (Note 23): Basic ￦ 2,024 ￦ 2,321 Diluted 2,024 2,321

See accompanying notes to the separate financial statements.

LG CORP. SEPARATE STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Korean won Year ended Year ended December 31, 2013 December 31, 2012

Profit for the year ￦ 355,978,550,242 ￦ 408,120,250,057

O ther comprehensive income (loss): Items that may be reclassified subsequently to profit or loss Net gain (loss) on AFS financial assets 1,559,458,505 1,598,397,403 Items that will not be reclassified subsequently to profit or loss Remeasurements of the net defined benefit liability (372,876,021) (1,336,845,617)

Total comprehensive income for the year ￦ 357,165,132,726 ￦ 408,381,801,843

See accompanying notes to the separate financial statements.

LG CORP. SEPARATE STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Korean won Accumulated other Capital comprehensive Retained Issued capital surplus Other capital items income (loss) earnings Total

Balance at January 1, 2012 ￦879,359,040,000 ￦2,408,934,677,373 ￦(2,434,888,809) ￦31,775,372,540 ￦ 3,858,425,477,914 ￦ 7,176,059,679,018 Annual dividends (175,934,602,350) (175,934,602,350) Profit for the year 408,120,250,057 408,120,250,057

Disposals of treasury shares 67,515,108 49,776,525 117,291,633

Remeasurements of the net defined benefit liability (1,336,845,617) (1,336,845,617) Net gain (loss) on AFS financial assets 1,598,397,403 1,598,397,403 Balance at December 31, 2012 ￦879,359,040,000 ￦ 2,409,002,192,481 ￦ (2,385,112,284) ￦33,373,769,943 ￦ 4,089,274,280,004 ￦ 7,408,624,170,144

Balance at January 1, 2013 ￦879,359,040,000 ￦2,409,002,192,481 ￦ (2,385,112,284) ￦33,373,769,943 ￦ 4,089,274,280,004 ￦ 7,408,624,170,144 Annual dividends (175,936,602,350) (175,936,602,350) Profit for the year 355,978,550,242 355,978,550,242 Remeasurements of the net defined benefit (372,876,021) (372,876,021) Net gain (loss) on AFS financial assets 1,559,458,505 1,559,458,505 Balance at December 31, 2013 ￦879,359,040,000 ￦2,409,002,192,481 ￦ (2,385,112,284) ￦34,933,228,448 ￦ 4,268,943,351,875 ￦ 7,589,852,700,520

See accompanying notes to the separate financial statements.

LG CORP. SEPARATE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Korean won Year ended Year ended December 31, 2013 December 31, 2012

CASH FLOWS FROM OPERATING ACTIVITIES: Profit for the year ￦ 355,978,550,242 ￦ 408,120,250,057

Additions of expenses not involving cash outflows: Depreciation 16,347,435,072 16,216,227,721 Amortization of intangible assets 865,170,626 783,021,492 Retirement benefits 3,242,881,402 2,597,698,845 Interest expenses 415,549,552 583,083,051 Income tax expense 59,758,481,043 63,250,122,047 Share-based payments - 7,996,832 Loss on disposals of property, plant and equipment 793,593,906 236,828,299 Other selling and administration expenses 50,792,179 48,883,382 81,473,903,780 83,723,861,669 Deduction of items not involving cash inflows: Interest income 7,176,124,982 3,888,187,903 Dividend income 200,289,747,657 252,609,508,715 Other operating income 415,549,552 389,728,588 (207,881,422,191) (256,887,425,206) Movements in working capital:

Other receivables 7,102,422,096 1,555,585,547 Other current assets 22,976,623 4,532,086 Other non-current receivables 500,000,000 (20,000,000) Other non-current assets (764,291,258) (1,216,402,879) Other payables (5,109,563,323) (9,424,058,570) Other current liabilities 552,094,904 1,647,262,160 Net defined benefit liability (5,110,327,165) (2,796,467,207) (2,806,688,123) (10,249,548,863)

(Continued)

LG CORP. SEPARATE STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Korean won Year ended Year ended December 31, 2013 December 31, 2012

Interest income received ￦ 6,536,302,575 ￦ 3,353,525,733 Dividend income received 200,289,747,657 252,609,508,715 Interest expenses paid - (259,544,871) Income taxes paid (67,683,659,886) (68,821,013,272) Net cash provided by operating activities 365,906,734,054 411,589,613,962

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash inflows from investing activities: Decrease in financial institution deposits 230,000,000,000 170,000,000,000 Disposals of property, plant and equipment 6,834,630 1,790,425,620 230,006,834,630 171,790,425,620 Cash outflows for investing activities: Increase in financial institution deposits 270,000,000,000 220,000,000,000 Acquisitions of investments in associates 4,336,323,449 10,469,031,328 Acquisitions of investments in subsidiaries 60,000,000,000 - Acquisitions of property, plant and equipment 1,423,318,976 760,308,410 Acquisitions of intangible assets 1,291,337,000 559,313,300 Acquisitions of investment properties 17,914,182,059 1,815,951,382 (354,965,161,484) (233,604,604,420) Net cash used in investing activities (124,958,326,854) (61,814,178,800)

(Continued)

LG CORP. SEPARATE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (CONTINUED)

Korean won Year ended Year ended December 31, 2013 December 31, 2012

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash inflows from financing activities: Proceeds from short-term borrowings - ￦ 76,531,082,754 Disposals of treasury stocks - 138,846,588 - 76,669,929,342 Cash outflows for financing activities: Payments of dividends 175,934,403,900 175,931,208,220 Redemptions of short-term borrowings - 131,531,082,754 (175,934,403,900) (307,462,290,974) Net cash used in financing activities (175,934,403,900) (230,792,361,632) NET INCREASE IN CASH AND CASH EQUIVALENTS 65,014,003,300 118,983,073,530 CASH AND CASH EQUIVALENTS, AT THE BEGINNING OF PERIOD 120,964,797,882 1,981,724,352 CASH AND CASH EQUIVALENTS, AT THE END OF PERIOD ￦ 185,978,801,182 ￦ 120,964,797,882

(Concluded)

See accompanying notes to the separate financial statements.

LG CORP. NOTES TO SEPARATE FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

1. GENERAL:

LG Corp. (the “Company”) is an investment holding company, which was formed to meet the changes in domestic and international business environments and become a global competitor through an effective management specializing its business sector. On March 1, 2003, it acquired LGEI, an investment company, and the real estate lease and investment business company, Serveone Co., Ltd.

The Company has been listed on the Korea Exchange stock market since February 1970. After numerous paid-in capital increases, spin-offs and mergers, the Company has outstanding capital stock of ￦879,359 million, including preferred stocks of ￦16,573 million as of December 31, 2013.

As of December 31, 2013, the Company’s related parties and major shareholders are as follows. Percentage of Name of shareholder Number of shares shares (%) (*) Ku, Bon Mu 18,978,169 10.79 Ku, Bon Jun 13,317,448 7.57 Ku, Bon Neung 8,855,032 5.03 Ku, Bon Shik 7,728,601 4.39 Kim, Young Shik 7,423,100 4.22 Ku, Gwang Mo and others 23,282,879 13.24 LG Yonam Education 3,675,742 2.09 Foundation LG Yonam Foundation 572,525 0.33 Others 92,038,312 52.34 Total 175,871,808 100.00 (*) Includes preferred stocks

2. STANDARDS AFFECTING PRESENTATION AND DISCLOSURE AND SIGNIFICANT ACCOUNTING POLICIES:

The separate financial statements were approved by the Board of Directors on February 6, 2014.

The Company has adopted the Korean International Financial Reporting Standards (the “K-IFRS”) from January 1, 2010, which is determined as the transition date of the Company to K-IFRS. And these are the separate financial statements of the Company in accordance with K-IFRS 1027 (Separate financial statements), those presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with K-IFRS 1109 (Financial Instruments).

The significant accounting policies under K-IFRS followed by the Company in the preparation of separate financial statements are summarized below. Unless stated otherwise, these accounting policies have been applied consistently to the separate financial statements for the current period and the comparative period.

(1) Established or revised accounting standards

1) Newly adopted and revised standards, their interpretations, and thereby changes in accounting policies being effective for the financial year beginning January 1, 2013, are as follows:

K-IFRS 1001 – Presentation of Financial Statements (revised)

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The amendments to K-IFRS 1001 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions are met. Other than this presentation change, the application of the amendments to K-IFRS 1001 does not result in any impact on the Company’s financial position and financial performance. The amendments have been applied retrospectively for the comparative period , and hence the presentation of items of other comprehensive income has been modified to reflect the changes.

K-IFRS 1019 – Employee Benefits (revised)

The amendments to K-IFRS 1019 require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of K-IFRS 1019 and the accelerate the recognition of past service costs. All actuarial gains and losses are recognized immediately through other comprehensive income (the option to recognize actuarial gains and losses in profit or loss has also been removed). Furthermore, the interest cost and expected return on plan assets used in the previous version of K-IFRS 1019 are replaced with a ‘net interest’ amount under K-IFRS 1019 (as revised in 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset. The amendments to K-IFRS 1019 also require the recognition of past service cost as an expense at the earlier date of (a) when the plan amendment or curtailment occurs and (b) when the Company recognizes related restructuring costs or termination benefits. The application of the amendments has had no material impact on the disclosures or on the amounts recognized in the separate financial statements.

K-IFRS 1107 – Financial Instruments: Disclosures (revised)

The amendments to K-IFRS 1107 are mainly focusing on presentation of the offset between financial assets and financial liabilities and require entities to disclose information about rights of offset and related arrangements (such as collateral agreements) for financial instruments under an enforceable master netting agreement or similar arrangement, irrespective of whether they would meet the offsetting criteria under K-IFRS 1032. As the Company has neither any offsetting financial instruments under K-IFRS 1032 nor any rights of offset or related arrangements in place, the application of the amendments has had no material impact on the disclosures or on the amounts recognized in the separate financial statements.

K-IFRS 1110 – Consolidated Financial Statements (enactment)

K-IFRS 1110 replaces the parts of K-IFRS 1027 Consolidated and Separate Financial Statements that deal with consolidated financial statements and K-IFRS 2012 Consolidation – Special Purpose Entities, and establishes a single basis for consolidation for all entities, including structured entities (the term from K-IFRS 2012, ‘special purpose entities’, is no longer used). Under K-IFRS 1110, an investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The application of K-IFRS 1111 has not had any material impact on the Company’s financial statements. K-IFRS 1111 – Joint Arrangement (enactment)

K-IFRS 1111 deals with how a joint arrangement of which two or more parties have joint control should be classified either as a joint operation or a joint venture. The classification of joint arrangements under K-IFRS 1111 is determined based on the rights and obligations of parties to the joint arrangements by considering the structure, the legal form of the arrangements, the contractual terms agreed by the parties to the arrangement, and, when relevant, other facts and circumstances. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement. If the Company is a joint operator, the Company is to recognize assets, liabilities, revenues and expenses in relation to its interest in a joint operation

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and if the Company is a joint venturer, the Company is to account for that investment using the equity method. The application of K-IFRS 1111 has not had any material impact on the Company’s financial statements.

K-IFRS 1112 – Disclosure of Interest in Other Entities (enactment)

K-IFRS 1112 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates, or unconsolidated structured entities. This standard requires an entity to disclose the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

K-IFRS 1113 – Fair Value Measurement (enactment)

K-IFRS 1113 establishes a single source of guidance for fair value measurements and disclosure about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. K-IFRS 1113 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is measured by taking into account the characteristics of the asset or liability that market participants would take when pricing the asset or liability at the measurement date. A fair value measurement under K-IFRS 1113 requires an entity to determine the particular asset or liability that is subject of the measurement, the principal (or most advantageous) market for the asset or liability, and the valuation technique(s) appropriate for the measurement. In addition, K-IFRS 1113 requires extensive disclosures about fair value measurements.

2) The Company has not applied the following new and revised K-IFRSs that have been issued but are not yet effective:

K-IFRS 1032 – Financial Instruments: Presentation (revised)

The amendments to K-IFRS 1032 clarify existing application issue relating to the offset of financial assets and financial liabilities requirements. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realization and settlement’.

The Company’s right to offset must not be conditional on the occurrence of future events but enforceable anytime during the contract periods, during the ordinary course of business with counterparty, a default of counterparty and master netting agreement or in some forms of non-recourse debt. The amendments to K-IFRS 1032 are effective for annual periods beginning on or after January 1, 2014

K-IFRS 1039 – Financial Instruments: Recognition and Measurement (revised)

The amendments to K-IFRS 1039 allows the continuation of hedge accounting when a derivative is novated to a clearing counterparty or entity acting in a similar capacity and certain conditions are met. The amendments to K- IFRS 1039 are effective for annual periods beginning on or after January 1, 2014.

K-IFRS 1110, K-IFRS 1112 and K-IFRS 1027– Investment Entities (revised)

The amendments introduce an exception to the principle under K-IFRS 1110 that all subsidiaries shall be consolidated and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. In addition, consequential amendments have been made to K-IFRS 1112 and K-IFRS 1027 to introduce new disclosure requirements for investment entities. The investment entities amendments are effective for annual periods beginning on or after January 1, 2014.

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K-IFRS 2121 – Levies (enactment)

K-IFRS 2121 defines a levy as a payment to a government for which an entity receives no specific goods or services. The interpretation requires that a liability is recognized when the obligating event occurs. The obligating event is the activity that triggers payment of the levy and is typically specified in the legislation that imposes the levy. The interpretation is effective for annual periods beginning on or after January 1, 2014.

The list above does not include some other amendments such as the Amendments to K-IFRS 1036 relating to recoverable amount disclosures for non-financial assets that are effective from January 1, 2014 with earlier application permitted.

The Company does not anticipate that the application of these new and revised K-IFRSs that have been issued but not effective will have any impact on the Company’s separate financial statements.

(2) Basis of preparing separate financial statements

1) Basis of measurement

The separate financial statements have been prepared on the historical cost basis, except otherwise stated below, such as financial instruments.

2) Functional and reporting currency

The separate financial statements of the Company are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The Company’s functional currency and the reporting currency for the separate financial statements is Korean won (“KRW”).

(3) Foreign currency translation

Transactions that occur in currencies other than the Company’s functional currency will be recorded at a translated amount using the exchange rate on the day of the transaction. At the end of reporting period, all monetary assets and liabilities will be translated using the exchange rate at the end of reporting date. Meanwhile, non-monetary assets and liabilities measured at fair value will be retranslated using the exchange rate on the day of fair value evaluation, whereas non-monetary assets and liabilities measured at historical cost will not be translated.

Exchange differences are recognized in profit or loss in the period in which they arise, except for:

 Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings, and  Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

(4) Cash and cash equivalents

Cash and cash equivalents include cash, savings and checking accounts and highly liquid short-term investments (maturities of three months or less from acquisition). Bank overdraft is accounted for as short-term borrowings.

(5) Financial assets

All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: ‘financial assets at fair value through profit or loss’ (FVTPL), ‘held-to-maturity investments,’ ‘available-for-sale financial assets,’ and ‘loans and receivables.’ The

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classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

1) Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as FVTPL.

2) Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; • on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; • the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or • it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

3) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed-maturity dates that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment, with revenue recognized on an effective-yield basis.

4) Financial assets available-for-sale (AFS)

Non-derivatives financial assets that are not classified as at held-to-maturity; held-for-trading; designated as at fair value through profit or loss; or loans and receivables are classified as at financial assets AFS. Financial assets can be designated as ale on initial recognition. Financial assets AFS are initially recognized at fair value, plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost. Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. Dividends on AFS equity instruments are recognized in profit or loss when

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the Company’s right to receive the dividends is established.

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate prevailing at the end of the reporting period. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

5) Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables.’ Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

6) Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; • default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial reorganization.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

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With respect to AFS equity securities, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income.

7) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

(6) Property, plant and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment is directly attributable to its purchase or construction, which includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of an asset or as an asset if it is probable that future economic benefits associated with the assets will flow to the Company and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

The Company does not depreciate land and some tangible assets, and depreciation is computed using the straight- line method based on the estimated useful lives of the assets as follows:

Estimated useful lives (years) Buildings 25–50 Structures 25 Furniture, fixtures and vehicles 6–12

The Company reviews the depreciation method; the estimated useful lives; and residual values of property, plant and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate.

(7) Investment in subsidiaries, associates and joint ventures

In accordance with K-IFRS 1027, the Company’s separate financial statements are financial statements that were prepared by the parent, or the investor with joint control of, or significant influence over, an investee, and where this parent, or investor, accounts for the investments at cost or in accordance with K-IFRS 1109. The Company chose the cost method based on K-IFRS 1027 to report investments in subsidiaries, associates and joint ventures. Dividends obtained from subsidiaries, associates and joint ventures are recognized in profit or loss when the right to receive dividends is confirmed.

(8) Investment property

Investment property held to earn rentals and/or for capital appreciation (including property under construction for such purposes) is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is measured at cost, less accumulated depreciation and accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of an asset or as an asset if it is probable that future economic benefits associated with the assets will flow into the Company and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

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Among the investment properties, land is not depreciated. However, investment properties other than land are depreciated over their useful lives of 25–50 years using the straight-line method.

The depreciation method, residual value and useful lives of investment properties are reassessed or reviewed at the end of each annual reporting period, and any changes in them are treated as change in accounting estimates.

(9) Intangible assets

Intangible assets acquired separately are carried at cost, less accumulated amortization and accumulated impairment losses. Intangible assets comprise of intellectual property, other intangible assets and construction in progress. They are amortized using the straight-line method over 5–10 years with no residual value. For facility rights that the Company has, there is no foreseeable limit to its use, and thus, it is deemed to have indefinite useful life and is not amortized. Intangible assets with indefinite useful lives are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

In relation to intangible assets with definite useful lives, the estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for as change in accounting estimates.

(10) Impairment of non-financial assets

The Company tests for impairment on assets with indefinite useful life, such as goodwill, and reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss when there has been an event to suspect such impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. If the cash inflow of an individual asset occurs separately from other assets or group of assets, the recoverable amount is measured for that individual account. Otherwise, it is measured for each cash-generating-unit (CGU). All non- financial assets that have incurred impairment are tested for reversal of impairment at the end of each reporting period.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount.

(11) Financial liabilities and equity instruments issued by the Company

1) Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

2) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

3) Financial liabilities

Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial liabilities are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

4) Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is

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designated as FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; • on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit taking; or • it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; • the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or • it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

5) Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective-yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

6) Financial guarantee contract liabilities

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined in accordance with K-IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets; and • the amount initially recognized less, cumulative amortization recognized in accordance with the K-IFRS 1018 Revenue.

7) Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, canceled or they expire.

(12) Lease

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

1) The Company as lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net

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investment in the leases. Finance lease interest income is allocated to accounting periods so as to reflect an effective interest rate on the Company’s net investment outstanding in respect of the leases. Rental income from operating leases is recognized on the straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on the straight-line basis over the lease term.

2) The Company as lessee

Assets held under finance leases are initially recognized as assets and liabilities of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. The financial charge, except in case that it is capitalized as part of the cost of that asset according to the Company’s accounting for borrowing costs, is immediately expensed in the period in which it is incurred. Contingent rents are charged as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on the straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rents for operating lease are charged as expenses in the periods in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expenses on the straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(13) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. When floating interest rate borrowing is used for acquisition of qualifying asset and effective cash flow hedging of interest risks have been made, effective portion of gain and loss from valuation of derivatives is deferred to equity and reflected in profit and loss when qualifying assets have an effect in the profit and loss of a specific period. When fixed interest rate borrowing is used for acquisition of qualifying asset and effective fair value hedging of interest risks has been made, the capitalized borrowing costs bear the hedging interest rate. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

(14) Employee benefits

1) Net defined benefit liability

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income), and remeasurement.

The Company presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.

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The retirement benefit obligation recognized in the consolidated statement of financial position represents the actual deficit or surplus in the Company’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.

2) Profit-sharing and bonuses

The Company has profit-sharing and bonus plans that distribute certain portion of net income of the period to its employees. In compliance with the official regulations of such profit-sharing and bonus plans, any incurred constructive obligation in exchange for the employees’ providing services to the Company for a specific period shall be recognized as provisions and the related costs are expenses during the current period. When recognizing obligations for the plans, the Company takes into account the possibility that an employee may not fulfill the vesting period requirement for profit-sharing or bonuses.

3) Share-based payment

Equity-settled share-based payment is recognized at fair value of equity security on the day of grant to employees and others providing similar services using the Black-Scholes method of pricing. The fair value of equity-settled share-based payment transaction determined on the grant date is expensed on the straight-line method based on the estimation of equity instruments expected to vest. The Company adjusts the estimation of number of equity securities expected to be vested on the last day of every reporting period. Initial adjustments to the estimations are expensed in profit or loss over the vesting period and reflected in equity-settled employee benefit reserves. In addition to situations where goods or services received from parties other than employees cannot be estimated reliably due to unclear acquisition terms or equity securities granted on date of services performed, the equity-settled share-based payments to parties other than employees are estimated at fair value of goods or services received. For cash-settled share-based payments, liabilities arising from goods or services received are recognized at fair value on the last day of every reporting period and related details are summarized in Note 21.

(15) Provisions

A provision is recognized when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Meanwhile, increase in provision due to passage of time is recognized in profit and loss as incurred, and at the end of the each reporting period, the provisions are reviewed and adjusted by the best estimated value. Changes in estimated costs or discount rate used are reflected as asset cost.

Provisions are calculated as present value of the best estimate of the expenditure required to settle the present obligation using a pretax discount rate that reflects current market assessments of the time value of money and those risks specific to the liability.

(16) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, net of value-added tax (“VAT”), returns, rebates and discounts. The Company recognizes revenue when it is reliably measurable and the inflows of future economic benefits are likely. For each type of sales, the Company recognizes revenue as follows:

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1) Rental revenue

The Company recognizes revenue for real estate rent income according to passage of time.

2) Interest income

Interest income is recognized through passage of time by the effective interest rate method. When receivables are impaired, the book value of the receivable is reduced to collectible amount (future cash inflows discounted by initial effective interest rate of the financial asset) and increasing amount due to passage of time is recognized as interest income. Initial effective interest rate is used when recognizing interest income from such receivables.

3) Dividend income

Dividends are recognized as revenue when the right to dividends is determined.

4) Royalty revenue

Income from use of trademark rights is recognized on an accrual basis to reflect related contracts’ economic substance.

(17) Current tax payable and deferred tax

Income tax expense consists of current tax and deferred tax.

1) Current tax payable

The current tax is computed based on the taxable profit for the year. The taxable profit differs from the profit for the period as reported in the separate statements of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax expense is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the separate financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income tax levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

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3) Recognition of current tax payable and deferred tax

Current and deferred taxes are recognized in profit or loss, except for those related to items other than profit or loss, such as other comprehensive income (loss) or items recognized directly in equity (current taxes and deferred taxes are both recognized in items other than profit or loss) of same or different accounting periods or items arising from initial accounting treatments of a business combination. For business combinations, income tax effects are considered when measuring goodwill or determining Company’s shares in fair value of acquiree’s identifiable assets, liabilities and contingent liabilities that exceed cost of business combination.

(18) Treasury stock

When the Company repurchases its equity instruments (treasury stock), the incremental costs that increase in relation to capital transactions, net of tax effect, are deducted from the shareholders’ equity and recognized as other capital items deducted from the total equity in the separate statements of financial position. In addition, profits or losses from purchase, sale or retirement of treasury stocks are directly recognized in shareholders’ equity and not in current profit or loss.

(19) Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of K-IFRS 1102 Share-based payment, leasing transactions that are within the scope of K- IFRS 1017 Leases, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in K-IFRS 1002 Inventories or value in use in K-IFRS 1036 Impairment of Assets.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; • Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and • Level 3 inputs are unobservable inputs for the asset or liability.

3. SIGNIFICANT CONSIDERATION AND MAJOR SOURCES OF ESTIMATION UNCERTAINTIES:

In the application of the Company accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

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4. SEGMENT INFORMATION:

The Company has only one operating segment in accordance with K-IFRS 1108, Operating segments, from entire Company’s perspective. Operating segment information for years ended December 31, 2013 and 2012, is as follows:

1) Operating income information (Unit: Korean won in millions)

Year ended Year ended Sectors December 31, 2013 December 31, 2012 Dividend income ￦ 200,290 ￦ 252,610 Royalty revenue 269,085 271,100 Rent revenue 98,671 92,853 Total ￦ 568,046 ￦ 616,563

2) Regional information

The Company’s operating income is all derived from domestic business and all of its non-current assets are located in South Korea.

3) Major client information

Operating income from major clients that covers more than 10% of operation income for years ended December 31, 2013 and 2012, is ￦305,317 million and ￦296,062 million, respectively.

5. CLASSIFICATION OF FINANCIAL INSTRUMENTS AND FAIR VALUE:

Carrying amount and fair value of financial assets and liabilities as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions):

1) Financial assets

Financial December 31, 2013 December 31, 2012 assets Account Carrying amount Fair value Carrying amount Fair value Cash and cash Cash and cash ￦ 185,979 ￦ 185,979 ￦￦ 120,965 ￦ 120,965 equivalents equivalents AFS Marketable equity 45,344 45,344 46,310 46,310 financial assets securities Unmarketable equity 49,772 49,772 46,748 46,748 Securities (*) Subtotal 95,116 95,116 93,058 93,058

Loans and Financial institution 140,000 140,000 100,000 100,000 receivables deposits Other account receivables 12,429 12,429 19,532 19,532

Accrued income 1,587 1,587 947 947

Deposit s 26 26 526 526

Subtotal 154,042 154,042 121,005 121,005

Total ￦ 435,137 ￦ 435,137 ￦ 335,028 ￦ 335,028

(*) The unlisted stocks that are AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost.

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2) Financial liabilities

Financial December 31, 2013 December 31, 2012 liabilities Account Carrying amount Fair value Carrying amount Fair value Financial Other accounts payables ￦ 35,511 ￦ 35,511 ￦ 42,662 ￦ 42,662 liabilities Accrued expenses 402 402 354 354 measured at Accrued dividends 308 308 306 306 amortized cost Deposits received 61,706 61,706 58,674 58,674

Total ￦ 97,927 ￦ 97,927 ￦ 101,996 ￦ 101,996

6. CASH AND CASH EQUIVALENTS:

Cash and cash equivalents in the separate statements of cash flows are equivalent to cash and cash equivalents in the separate statements of financial position. Details of cash and cash equivalents as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions):

Description December 31, 2013 December 31, 2012 Cash on hand ￦ 13 ￦ 8 Bank deposits 90,046 90,007 Other cash equivalents 95,920 30,950 Total ￦ 185,979 ￦ 120,965

7. ACCOUNT AND OTHER RECEIVABLES:

As of December 31, 2013 and 2012, account receivables and other receivables are not impaired or overdue. Details are as follows (Unit: Korean won in millions):

December 31, 2013 December 31, 2012 Description Current Non-current Current Non-current Account receivables ￦ 12,430 ￦ - ￦ 19,532 ￦ -

Accrued income 1,587 - 947 -

Deposits - 26 - 526

Total ￦ 14,017 ￦ 26 ￦ 20,479 ￦ 526

8. OTHER ASSETS:

Details of other assets as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions):

December 31, 2013 December 31, 2012 Description Current Non-current Current Non-current Advanced payments ￦ - ￦ 3,270 ￦ - ￦ 3,318

Prepaid expenses 106 - 129 -

￦ 106 ￦ 3,270 ￦ 129 ￦ 3,318 Total

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9. PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTY:

(1) Changes in acquisition cost of property, plant and equipment and investment property for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions):

Year ended December 31, 2013 Property, plant and equipment Investment property Furniture Construc and -tion in Construction Description Land Buildings Structures Vehicles fixtures progress Land Buildings Structures in progress Total Beginning balance ￦5,015 ￦ 11,447 ￦ 246 ￦ 7,666 ￦ 5,088 ￦ 10 ￦ 230,206 ￦ 451,098 ￦ 8,915 - ￦ 719,691

Acquisition - 49 - 505 874 5 15,803 2,563 - 109 19,908

Disposals - - - (1,140) (306) - - - - - (1,446)

Transfers in - 4 - 11 - - 141 844 17 - 1,017

Transfers out (141) (735) (17) - - (15) - - - (109) (1,017)

Ending balance ￦ 4,874 ￦ 10,765 ￦ 229 ￦ 7,042 5,656 ￦ - ￦ 246,150 ￦ 454,505 ￦ 8,932 ￦ - ￦ 738,153

Year ended December 31, 2012 Property, plant and equipment Investment property Furniture Construc and -tion in Description Land Buildings Structures Vehicles fixtures progress Land Buildings Structures Total Beginning balance ￦ 4,379 ￦ 8,069 ￦ 167 ￦ 10,371 ￦ 4,656 ￦ - ￦ 230,842 ￦452,586 ￦ 8,994 ￦ 720,064 Acquisition - 74 - 244 432 10 - 1,816 - 2,576 Disposals - - - (2,949) - - - - - (2,949) Transfers in 636 3,304 79 ------4,019 Transfers out ------(636) (3,304) (79) (4,019) Ending balance ￦ 5,015 ￦ 11,447 ￦ 246 ￦ 7,666 ￦ 5,088 ￦ 10 ￦ 230,206 ￦451,098 ￦ 8,915 ￦ 719,691

(2) Changes in accumulated depreciation for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions):

Year ended December 31, 2013

Property, plant and equipment Investment property

Furniture and Description Buildings Structures Vehicles fixtures Buildings Structures Total Beginning balance ￦ 2,244 ￦ 80 ￦ 1,863 ￦ 2,230 ￦ 61,517 ￦ 2,265 ￦ 70,199 Disposals - - (340) (305) - - (645) Depreciation 317 9 773 518 14,413 317 16,347 Transfers in - - - - 120 6 126 Transfers out (120) (6) - - - - (126) Ending balance ￦ 2,441 ￦ 83 ￦ 2,296 ￦ 2,443 ￦ 76,050 ￦ 2,588 ￦ 85,901

Year ended December 31, 2012

Property, plant and equipment Investment property

Furniture and Description Buildings Structures Vehicles fixtures Buildings Structures Total Beginning balance ￦ 1,464 ￦ 48 ￦ 1,991 ￦ 1,818 ￦ 47,613 ￦ 1,970 ￦ 54,904 Disposals - - (921) - - - (921) Depreciation 338 9 793 412 14,346 318 16,216 Transfers in 442 23 - - - - 465 Transfers out - - - - (442) (23) (465) Ending balance ￦ 2,244 ￦ 80 ￦ 1,863 ￦ 2,230 ￦ 61,517 ￦ 2,265 ￦ 70,199

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(3) Detail of valuation to fair value of investment property as of December 31, 2013, is as follows (Unit: Korean won in millions): Buildings Discription Date of revaluation Land and structures Total Book value of investment property: Book value(*1) ￦ 247,991 ￦ 392,756 ￦ 640,747

Result of valuation:

Twin tower (*1) 2012-03-16 456,800 343,200 800,000

Gasandong building (*2) 2009-04-21 50,966 110,104 161,070

Gwanghwamun building 2010-09-30 145,452 84,548 230,000

Buho building 2013-06-04 16,513 1,238 17,751 Total ￦ 669,731 ￦ 539,090 ￦ 1,208,821

(*1) It includes the valuation amounts related to its own use (carrying value: ￦9,798 million). (*2) According to the Industrial Collaboration and Establishment of Facilities law, the Company can sell partial or entire land only if the Company obtains either approval from or sells off some or entire land to Korea Industrial Complex Corporation.

Fair value assessment was performed by an independent third party, Nara Appraisal Co., Ltd., & Daeil Appraisal Board which use an average costing approach and cost approach method of standard appraised value of land and buildings. Related to Twin tower, Gasandong building and Gwanghwamun building, the changes in fair value between the date of the assessment and end of the reporting period are not determined to be significant; therefore, the reassessment of fair value was not performed.

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10. INTANGIBLE ASSETS:

(1) Composition of the Company’s intangible assets as of December 31, 2013 and 2012, is as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Intellectual Industrial Description property property rights Membership Other rights Membership Other Acquisition cost ￦ 9,830 ￦ 6,754 ￦ 3,048 ￦ 8,986 ￦ 6,232 ￦ 2,257

Accumulated depreciation (6,607) - (1,660) (6,111) - (1,291)

Carrying amounts ￦ 3,223 ￦ 6,754 ￦ 1,388 ￦ 2,875 ￦ 6,232 ￦ 966

(2) Changes in intangible assets for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions) Year ended December 31, 2013

Intellectual Construction Description property rights Membership Other in progress Total Beginning balance ￦ 2,875 ￦ 6,232 ￦ 966 ￦ - ￦ 10,073 Acquisition - 500 265 548 1,313 Transfers in (out) 844 22 526 (548) 844 Amortization (496) - (369) - (865) Ending balance ￦ 3,223 ￦ 6,754 ￦ 1,388 ￦ - ￦ 11,365

Year ended December 31, 2012

Intellectual Description property rights Membership Other Total Beginning balance ￦ 2,071 ￦ 5,990 ￦ 960 ￦ 9,021 Acquisition - 242 317 559 Transfers in (out) 1,276 - - 1,276 Amortization (472) - (311) (783) Ending balance ￦ 2,875 ￦ 6,232 ￦ 966 ￦ 10,073

11. INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES:

(1) Composition of the Company’s investments in subsidiaries as of December 31, 2013 and 2012, is as follows (Unit: Korean won in millions):

December 31, 2013 Percentage of ownership Location of Major Closing Percentage of (Common Companies incorporation operation date ownership (%) stock) (%) Book value LG Siltron Inc. South Korea Manufacturing 12-31 51.00 51.00 ￦ 239,575

LG CNS Co., Ltd. South Korea Services 12-31 84.97 84.97 330,533

Serveone Co., Ltd. South Korea Renting 12-31 100.00 100.00 223,424

Lusem Co., Ltd. South Korea Manufacturing 12-31 64.81 64.81 29,375

LG Sports Ltd. (*1) South Korea Services 12-31 100.00 100.00 66,097

LG Management Development Research and South Korea 12-31 100.00 100.00 17,203 Institute development Sunlight LG Solar Energy Inc. South Korea 12-31 100.00 100.00 26,630 Generation Total ￦ 932,837

(*1) The Company took part in paid-in capital increase of ￦60,000 million for the year ended December 31, 2013.

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December 31, 2012

Percentage of Percentage of ownership Location of Major Closing ownership (Common Companies incorporation operation date (%) stock) (%) Book value LG Siltron Inc. South Korea Manufacturing 12-31 51.00 51.00 ￦ 239,575

LG CNS Co., Ltd. South Korea Services 12-31 84.97 84.97 330,533

Serveone Co., Ltd. South Korea Renting 12-31 100.00 100.00 223,424

Lusem Co., Ltd. South Korea Manufacturing 12-31 64.81 64.81 29,375

LG Sports Ltd. South Korea Services 12-31 100.00 100.00 6,097

LG Management Development Research and South Korea 12-31 100.00 100.00 17,203 Institute development Sunlight LG Solar Energy Inc. South Korea 12-31 100.00 100.00 26,630 Generation Total‘ ￦ 872,837

(2) Composition of the Company’s investments in associates and joint ventures as of December 31, 2013 and 2012, is as follows (Unit: Korean won in millions): December 31, 2013 Percentage of Percentage of ownership Location of Closing ownership (Common Companies incorporation Major operation date (%) stock) (%) Book value LG Electronics Inc. South Korea Manufacturing 12-31 30.47 33.67 ￦ 2,804,603

LG Chem Ltd. South Korea Manufacturing 12-31 30.07 33.53 1,277,994

LG Hausys, Ltd. South Korea Manufacturing 12-31 30.07 33.53 183,828

LG Household & Health Care Ltd. South Korea Manufacturing 12-31 30.00 34.03 141,608

LG Life Science Co., Ltd. South Korea Manufacturing 12-31 30.00 30.43 83,295

LG Uplus Corp. South Korea Telecommunications 12-31 36.05 36.05 1,162,048

GIIR Corporation South Korea Hoardings 12-31 35.00 35.00 39,496

LG Hitachi Co., Ltd. South Korea Services 12-31 49.00 49.00 14,023

LG MMA Corp. (*1) South Korea Manufacturing 12-31 50.00 50.00 115,350

LG Fuel Cell System Inc.(*2,3) America Research and 12-31 12.00 12.00 14,805 Experimental Development Total ￦ 5,837,050

December 31, 2012 Percentage of Percentage of ownership Location of Closing ownership (Common Companies incorporation Major operation date (%) stock) (%) Book value LG Electronics Inc. South Korea Manufacturing 12-31 30.47 33.67 ￦ 2,804,603